Public-private partnerships: the new model for infrastructure

Maryland is poised to join 34 states and key federal agencies in transforming the way government works. The new mantra, "P3," is shorthand for public-private partnerships.

Maryland's P3 legislation, championed by Lt. Gov. Anthony Brown, enables state agencies to engage business in planning, financing, building and operating public projects, from roads and rail to schools and other infrastructure. These could offset up to 10 percent of the state's capital budget, or $300 million annually, and create thousands of jobs. The new law also allows developers to propose P3 projects the state has not yet conceived — a far-reaching initiative to enlist private enterprise in solving public problems.

With this potential, everyone should ask: What are P3s? Why are they important? And how do they work?

•What: P3s deliver public services through agreements between government agencies and private firms. The public partner owns the assets, typically through a long-term ground lease; the business finances and builds facilities and operates the partnership. P3s are not outsourcing or privatization. Instead, they fuse public purposes, business practices and profits to perform functions more efficiently and effectively than government or business could on their own.

The Port of Baltimore's Seagirt P3 is funding new deepwater berths, mammoth cranes and through-highway access. Virginia has completed over $1 billion in P3 projects and has $5 billion more in its pipeline to generate jobs, close budget gaps, and attract business as well as ease traffic congestion.

A P3 to redevelop the FBI headquarters in Washington would invest at least $1 billion. The taxpayer would avoid this cost and risk; the FBI would get state-of-the art workspace; Maryland could add thousands of jobs, if selected for a new FBI campus; and an eyesore on the nation's "Main Street" would be replaced by a sparkling new centerpiece. If the financing were sensibly structured, all parties would receive a share of the projected economic values.

•Why: P3s enable public agencies to undertake projects they otherwise would postpone or ignore. Engineers estimate that it will cost over $3 trillion to renew America's crumbling infrastructure. Every billion dollars in infrastructure investment creates 15,000 jobs. But our current approach is crisis-driven: It is easier for politicians to repair collapsing bridges than to fund preventive maintenance.

The Capital Beltway now needs rebuilding more than resurfacing. Its poor condition costs the average commuter $600 annually in vehicle wear and tear. P3s could take $9 billion in Beltway reconstruction and interchange costs off Maryland's books while attracting private investment to create more efficient high-occupancy vehicle lanes and rapid transit.

Canada shows the scope for an integrated national and state-level P3 policy covering nearly all types of public facilities, from transportation and hospitals to schools and jails. By incorporating design, financing, construction and maintenance, Canada achieves 10 percent savings on large, long-term projects and redeploys the proceeds for other priorities.

•How: Collaboration makes P3s work. Business partnerships succeed on handshakes and prosper with cooperation but fail if they become adversarial. Although P3 terms must be formalized on paper, a P3 that relies on its contract, not its leaders, to solve policy and operational problems is doomed to fail.

The P3 business model has built-in revenues and risk-sharing. Toll roads, tunnels and ports are natural candidates because they generate user fees to finance construction and operating costs. Military housing P3s are fueled by soldiers' allowances that enhance the developers' credit to attract private capital. Still to come: fiscal structures that convert capital assets to rent payments, propelling governments to unload their huge inventories of office, administrative and logistics space.

As P3s proliferate, oversight is essential. P3s tie government and business executives to shared goals, ground policy decisions on thorough analysis, and measure progress against plans. Because private sources provide most of the capital and insist on market discipline, there is no room for political grandstanding.

President Barack Obama has often spoken of public-private partnerships and included $50 billion for thousands of potential projects in his new budget. Despite political differences, Maryland's and Virginia's governors share the vision of expanded P3s, including cyber- and social infrastructure as well as transportation. World Bank president Jim Yong Kim is incorporating P3s in his agency's global mission. In Australia, Britain and a dozen other countries, more than 1,000 P3s are in operation.

If you are in government, P3s unleash funding and talent. If you are in business, P3s open new markets. If you are a taxpayer, P3s multiply your public contribution five to 10 times. Everyone wins.

Sandy Apgar, a Baltimore resident, advises business and government leaders on strategy and management. He was assistant secretary of the Army for installations and environment in the Clinton administration and launched the federal government's largest P3 for military housing. He keynoted the first National P3 Conference in Dallas and the State of Maryland's Joint Legislative and Executive Commission on P3s. His email is sapgar@apgarco.com.